Archive: February, 2015
This year at the 85th Annual Academy Awards, the nominees received swag bags with an estimated fair market value of $168,000. As we celebrate the best of the best for their contributions to cinema in 2014, it should be noted that these swag bags will be taxable as income on the nominees 2015 individual tax return (1040). Assume the tax rate for these items is an even 30%. The estimated payment owed to the IRS (assuming no other income items) at a 30% tax rate would be $50,400. As with all high net worth individuals, this is where the rubber meets the road for 2015 tax planning. Failure to do so could mean incurring a huge tax liability for 2015 as well as penalties for underpayment of estimated tax.
Impersonating the IRS is not as uncommon as one might think. IRS impersonators are generally calculating, convincing, and overly informed regarding intimate information about their victims. They will attempt contact using a variety of methods (phone, mail, email, etc.), often armed with social security numbers, specific dollar amounts, addresses, names of family members, and other obscure statistics.
The Tax Division of the Department of Justice is prosecuting U.S. taxpayers that fail to voluntarily come forward and take advantage of programs like OVDP and Streamline Filing. The guidelines for sentencing in these types of cases has changed drastically since the 1970s. The guidelines now have more flexibility to deviate upwards/downwards while applying principles of both general and specific deterrence.
The Department of Justice Tax Division has been investigating HSBC in Switzerland since 2010. With the recent Swiss Leaks (team of journalists from 45 countries) that unearthed secret bank accounts maintained for criminals, traffickers, tax dodgers, politicians and celebrities, the Swiss government took action by raiding the Geneva office. Undoubtedly, this is only the beginning of the issues that HSBC will encounter as more information comes to light. Any United States taxpayers that have undisclosed accounts or assets with HSBC need to immediately come forward and take advantage of the IRS OVDP or Streamline Filing programs.
On the heels of the 100,000 names that were leaked from HSBC, there are 4,183 clients that are United States citizens. With this list the Department of Justice could cross-match these names to the results of the John Doe Summons issued in December 2014 (see John Does Order) to determine a list of United States taxpayers that may be evading tax. The IRS has identified companies, like Soverign LTD, that have utilized offshore entities and business merchant accounts to provide an undetectable transfer of funds (see John Does Declaration).
Outrageous attempted tax deductions make for a good laugh, but as frivolous as they seem, in reality, some are not quite so far off base. For example, a horse farm that is properly set-up and used for income producing activity can be deducted. However, a horse farm used purely for one’s own personal entertainment (a hobby) is not deductible. Additionally, many deductions such as vacations, pets, food, and clothing may, or may not, be acceptable tax deductions, based upon the taxpayer’s specific industry of employment and method of reporting (individual, LLC, SCorp, LLP, etc.).
John Doe summonses were issued at the end of 2014 on eight entities (FedEx Express, FedEx Ground, DHL, UPS, Western Union, the FRBNY, Clearing House and HSBC USA) to produce records that will assist the IRS in identifying U.S. taxpayers who, from 2005 through 2013, used Sovereign’s services to establish, maintain, operate or control of any foreign financial account or other assets; any foreign corporation, company, trust, foundation or other legal entity; or any foreign or domestic financial account in the name of such foreign entity.
The Minnesota Department of Revenue posted guidance on February 5th, 2015. There has been potential fraudulent activity through Turbo Tax for Minnesota State Tax Returns. Therefore, in an effort to combat this activity, the State of Minnesota is no longer accepting State Tax Turbo Tax filings. Minnesota state residents should seek the assistance of a federally authorized tax practitioner that can help assist with filing both the federal and state tax returns for 2014.
The Office of Management and Budget released the President’s Budget for Fiscal Year 2016 on Monday. The proposal is very detailed in its suggestions for changes to the tax code for individuals, businesses, international taxation, and gift/estate taxation. Below is a specific list of notable items:
Implement the Fair Share Tax
The Warren Buffet Rule that seeks to tax high net worth households at a minimum of 30% is a bad idea based on bad policy. We already have the NIIT and additional Obamacare tax. What’s next? A minimum tax for middle class individuals or low income taxpayers? Let’s not even get started on the amount.
Extend the exclusion from income for cancellation of debt income for certain qualified personal residence indebtedness (QPRI)
The scores are in! According to recently released IRS data for 2012, you have to make $434,682 or more in AGI (Adjusted Gross Income) to classify as the top 1% of taxpayers. This rare classification accounted for nearly 22% of the total AGI reported to the IRS, and 38% of the total income tax paid in 2012.
Astonishingly enough, you only need to bring in $36,055 to be in the top half of all taxpayers. Those in the bottom half, earned only 11.1% of total AGI reported and paid nearly 3% of the total income taxes paid. For comparative reference, when we look back to 1986, the top 1% only earned 11% of the total income and paid 26% of the total income tax collected, while lower income earners made 17% of income and paid 6% of the total taxes.